Terra Classic Hack

A complex mixture of events and market dynamics cost the implosion of the $40b Terra (Classic) Network.

The Terra Luna Network was focused on its two native coins $LUNC and $USTC. $USTC was the algorithmic Stablecoin that was supposed to hold the peg to 1$ and $LUNC functioned as the satellite asset that absorbed $USTC’s volatility. This was achieved through a mint and burn functionality as well as by arbitrage which the former function inherently enabled.

$USTC rose to prominence in rapid fashion even surpassing $DAI in market cap. The Luna Foundation Group decided to start a new Curve4pool with $FRAX, $USTC, $USDC and $USDT as assets, excluding $DAI in an attempt to starve the most used StableCoin pool used by institutions the Curve3pool on the Ethereum network.

The migration of $USTC from the Curve3pool is the event that started the bankrun. In early May, the Luna Foundation Guard withdrew 250 million $USTC from the Curve3pool in preparation for the Curve4pool. Simultaneously, a handful of whales withdrew sizeable amounts from the anchor protocol, a crypto savings bank. The biggest wallet withdrew 347 million $USTC in total and bridged funds to the Curve3pool in order to swap for other assets. This movement of funds created an imbalance between $USTC and other Stablecoins in the pool, resulting in devaluation of $USTC on exchanges.

As a result of the tokenomics of $USTC and $LUNC the firesale of $USTC resulted in uncontrollable minting of the $LUNC token and a rapid fall in valuation. Additionally, the Terra network went down due to overload in transaction as market participants were panicking and trying to answer margin calls within the Anchor protocol. Eventually massive liquidations of collateral in the Anchor protocol would be incurred by investors.

Whale Addresses:

https://etherscan.io/address/0x8d47f08e…947d0a

https://etherscan.io/address/0x4b5e60cb…bb781c

https://etherscan.io/address/0x1df8ea15…aa2a06

https://etherscan.io/address/0xeb5425e6…01f232

https://etherscan.io/address/0x41339d98…5ebb1c

https://etherscan.io/address/0x68963dc7…9b9c69

https://etherscan.io/address/0x9f705ff1…cd7784